AUTOMOBILE SECTOR IN INDIA

REPORT ON ANALYSIS O F FINANCIAL RATIOS O F TATA M OTOR

ITS INTRA AND INTER FIRM RATIO COMPARISON

Figure 1

SUBMITTED TO: DR. RISHI MANRAI

SUBMITTED BY: HAZRATBILAL MUJADADI
PRN No. 15021021148
10/10/2016

Content

Introduction to Automobile Sector

Introduction to TATA Motor Company
Balance sheet of TATA Motor Company for year 2015 and year 2014
Profit &Loss Account of TATA Motor for year 2015 and year 2014
Definition of Ratio
Ratio Analysis
Types of Ratio
Comparison of Ratios
Recommendations
Conclusion
Ratio Comparison of TATA Motor Company
BAJAJ Auto Company for year 2015 and year 2014.

Introduction to Automobile Sector:

The turn of the twentieth century witnessed the dawning of the automobile industry. Tinkering
by bicycle, motorcycle, buggy, and machinery entrepreneurs in Europe and the United States
led to the first prototypes of automobiles in the late nineteenth century. French woodworking
machinery makers Rene Panhard and Emile Levassor built their first car in 1890 with an engine
designed in Germany by Gottlieb Daimler and Wilhelm Maybach. Armand Peugeot, a French
bicycle maker, licensed the same engine and sold his first four lightweight cars in 1891.
German machinist Carl Benz followed the next year with his four-wheeled car and in 1893
Charles and Frank Duryea built the first gasoline-powered car in the United States. Ransom
Olds is credited as the first mass producer of gasoline-powered automobiles in the United
States, making 425 Curved Dash Olds in 1901. The first gasoline-powered Japanese car was
made in 1907 by Komanosuke Uchiyama, but it was not until 1914 that Mitsubishi massproduced cars in Japan.
The automotive industry is dynamic and vast, accounting for approximately one in ten jobs in
industrialized countries. Developing countries often look to their local automotive sector for
economic growth opportunities, particularly because of the vast linkages that the auto industry
has to other sectors of their economy.

MODERN ECONOMIC ORIGINS OF THE AUTOMOBILE INDUSTRY

The auto industry has passed through several stages: (1) craft production (1890-1908), in which
dozens of small enterprises vied to establish a standard product and process; (2) mass
production (1908-1973), precipitated by Henry Fords moving assembly lines, which became
the standard operating mechanism of the industry; and (3) lean production (1973present),
which was initially developed at Toyota under the leadership of Taichi Ohno during the 1950s,
and which introduced a revolutionary management process of product-development and
production.
Product innovation in the automotive industry has mainly been a response to customer
demands, although product positioning is a critical strategic variable for automakers. Ever since
General Motors began producing different types of vehicles for different product segments,
thereby ending the reign of Fords low-price, monochromatic Model T, the ability to vary
products on several dimensions has been the main strategic variable of auto producers. U.S.
automakers have mainly been responsive to customers desires for comfort, speed, and safety,
and have developed rugged drive trains, plush suspensions and interiors, and stylish chassis
and bodies. In contrast, European auto producers have focused their attentions on performance
and agility features of vehicles, such as steel-belted radial tires, disc brakes, fuel injection, and
turbo diesel engines. For Japanese producers, the miniaturization culture and the scarcity of
fuel, materials, and space largely determine the specifications of cars.

TATA Motor
Tata Motors is an automotive manufacturing company based in India. Headquartered in
Mumbai, it was formerly known as TELCO, and its parent company is Tata Group. The major
products that the company deals in include trucks, passenger cars, vans, buses, coaches,
military vehicles and construction equipments. As of now, it is the 17th biggest motor vehicle
production company in the world, 4th biggest truck producer, and 2nd biggest bus
manufacturer.
Tata Motors Limited is Indias largest automobile company, with consolidated revenues of INR
2, 62,796 crores (USD 42.04 billion) in 2014-15. It is the leader in commercial vehicles in each
segment, and among the top in passenger vehicles with winning products in the compact,
midsize car and utility vehicle segments.
The Tata Motors Groups over 60,000 employees are guided by the mission to be passionate
in anticipating and providing the best vehicles and experiences that excite our customers
globally.''
Established in 1945, Tata Motors presence cuts across the length and breadth of India. Over 8
million Tata vehicles ply on Indian roads, since the first rolled out in 1954. The companys
manufacturing base in India is spread across Jamshedpur (Jharkhand), Pune (Maharashtra),
Lucknow (Uttar Pradesh), Pantnagar (Uttrakhand), Sanand (Gujarat) and Dharwad
(Karnataka). Following a strategic alliance with Fiat in 2005, it has set up an industrial joint
venture with Fiat Group Automobiles at Ranjangaon (Maharashtra) to produce both Fiat and
Tata cars and Fiat powertrains. The companys dealership, sales, services and spare parts
network comprises over 6,600 touch points, across the world.
Tata Motors, also listed in the New York Stock Exchange (September 2004), has emerged as
an international automobile company. Through subsidiaries and associate companies, Tata
Motors has operations in the UK, South Korea, Thailand, South Africa and Indonesia. Among
them is Jaguar Land Rover, acquired in 2008. In 2004, it acquired the Daewoo Commercial
Vehicles Company, South Koreas second largest truck maker. The rechristened Tata Daewoo
Commercial Vehicles Company has launched several new products in the Korean market,
while also exporting these products to several international markets.
Tata Motors is also expanding its international footprint, established through exports since
1961. The companys commercial and passenger vehicles are already being marketed in several
countries in Europe, Africa, the Middle East, South East Asia, South Asia, South America,
Australia, CIS and Russia. It has franchisee/joint venture assembly operations in Bangladesh,
Ukraine, and Senegal.
The foundation of the companys growth over the last 70 years is a deep understanding of
economic stimuli and customer needs, and the ability to translate them into customer-desired
offerings through leading edge R&D. With over 4,500 engineers, scientists and technicians the
companys Engineering Research Centre, established in 1966, has enabled pioneering
technologies and products. The company today has R&D centres in Pune, Jamshedpur,
Lucknow, Dharwad in India, and in South Korea, Italy, Spain, and the UK.
It was Tata Motors, which launched the first indigenously developed Light Commercial
Vehicle in 1986. In 2005, Tata Motors created a new segment by launching the Tata Ace,

Indias first indigenously developed mini-truck. In 2009, the company launched its globally
benchmarked Prima range of trucks and in 2012 the Ultra range of international standard light
commercial vehicles. In their power, speed, carrying capacity, operating economy and trims,
they will introduce new benchmarks in India and match the best in the world in performance
at a lower life-cycle cost.
Tata Motors also introduced Indias first Sports Utility Vehicle in 1991 and, in 1998, the Tata
Indicia, Indias first fully indigenous passenger car.
In January 2008, Tata Motors unveiled the world famous, the Tata Nano and subsequently
launched, as planned, in India in March 2009, since its inception, it was developed to meet the
needs of an attractive and affordable entry level car. The Nano has evolved over time, with the
needs of its customers, to become a feature-rich compact hatchback. The Company has
introduced the new generation range called the GenX Nano in May 2015.
Tata Motors is equally focussed on environment-friendly technologies in emissions and
alternative fuels. It has developed electric and hybrid vehicles both for personal and public
transportation. It has also been implementing several environment-friendly technologies in
manufacturing processes, significantly enhancing resource conservation.
Tata Motors is committed to improving the quality of life of communities by working on four
thrust areas - employability, education, health and environment. The activities touch the lives
of more than a million citizens. The companys support on education and employability is
focused on youth and women. They range from schools to technical education institutes to
actual facilitation of income generation. In health, the companys intervention is in both
preventive and curative health care. The goal of environment protection is achieved through
tree plantation, conserving water and creating new water bodies and, last but not the least, by
introducing appropriate technologies in vehicles and operations for constantly enhancing
environment care.
Addressing
Operational
Challenges
To
Increase
Market
Share
In 2015-16, Tata Motors market share in the commercial vehicles segment declined to nearly
44% while share in the passenger vehicles market declined to 5.4%. Through the restructuring
plan the company now plans to achieve a 50% market share in the commercial vehicles
segment and has a target of a double digit market share in the passenger vehicles space. The
restructuring plan aims at breaking the silos, ensuring that new vehicles are launched on time
and enough inventories are maintained to meet the market demand. The company faces intense
competition from Ashok Leyland and Eicher Motors in the commercial vehicles segment and
capturing a higher market share could be a tough task.
As per our estimates the domestic segment accounts for 8% of Tata Motors valuation and we
expect the companys market share in the Indian automotive market to increase from around
13.6% in 2016 to more than 15% by the end of our forecast period. During the same period we
expect the Indian automotive market to witness a steady increase and the number of vehicles
sold to rise from 3.4 million in 2016 to around 4.7 million by the end of our forecast period.
While a high market share in the domestic market will not impact Tata Motors valuation
significantly, given that it represents a small percentage of the total valuation, this segment is
critical for long term growth. The Indian automotive market is growing strongly and has a huge
potential in future. Tata Motors focus to increase market share in the region will enable the
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company to establish its lost identity and lay a strong foundation to capture growth in the region
in future.

Balance Sheet summarizes a company's Assets, Liabilities and Owners' Equity (Net Worth)
at a specific point in time, usually at the end of an accounting period. The purpose of a Balance
Sheet is to give users an idea of the company's financial condition along with displaying what
the company owns and owes.

Tata Motors
Balance Sheet

Sources Of Funds
Total Share Capital
Equity Share Capital
Reserves
Networth
Secured Loans
Unsecured Loans
Total Debt
Total Liabilities

Application Of Funds
Gross Block
Less: Revaluation Reserves
Less: Accum. Depreciation
Net Block
Capital Work in Progress
Investments
Inventories
Sundry Debtors
Cash and Bank Balance
Total Current Assets
Loans and Advances
Total CA, Loans & Advances
Current Liabilities
Provisions
Total CL & Provisions
Net Current Assets
Total Assets
Contingent Liabilities
Book Value (Rs)

Mar '15

Mar '14

12 mths

12 mths

643.78
643.78
14,195.94
14,839.72
4,803.26
15,277.71
20,080.97
34,920.69

643.78
643.78
18,510.00
19,153.78
4,450.01
10,065.52
14,515.53
33,669.31

12 mths

12 mths

27,973.79
22.87
12,190.56
15,760.36
6,040.79
16,987.17
4,802.08
1,114.48
944.75
6,861.31
4,270.67
11,131.98
12,282.33
2,717.28
14,999.61
-3,867.63
34,920.69
9,882.65
46.1

26,130.82
22.87
10,890.25
15,217.70
6,355.07
18,458.42
3,862.53
1,216.70
226.15
5,305.38
4,374.98
9,680.36
13,334.13
2,708.11
16,042.24
-6,361.88
33,669.31
13,036.73
59.51
4

Profit and Loss statement is a critical report when a manager is analysing how well the
business is performing. The statement lists all of the business revenues and the gross profit,
which consists of the total revenues less the cost of goods sold. All other business expenses are
then listed and subtracted from the gross profit to give the net profit. Reviewing the profit and
loss statement has advantages and disadvantages.

Profit & Loss account

Income
Sales Turnover
Excise Duty
Net Sales
Other Income
Stock Adjustments
Total Income
Expenditure
Raw Materials
Power & Fuel Cost
Employee Cost
Other Manufacturing Expenses
Miscellaneous Expenses
Total Expenses

Operating Profit
PBDIT
Interest
PBDT
Depreciation
Profit Before Tax
PBT (Post Extra-ord Items)
Tax
Reported Net Profit
Total Value Addition
Equity Dividend
Corporate Dividend Tax
Per share data (annualised)
Shares in issue (lakhs)
Earning Per Share (Rs)
Equity Dividend (%)
Book Value (Rs)

Mar '15

Mar '14

12 mths

12 mths

39,524.34
3,229.60
36,294.74
1,477.66
878.82
38,651.22

37,758.00
3,469.89
34,288.11
3,293.17
-371.72
37,209.56

28,367.83
395.88
3,091.46
437.47
6,118.40
38,411.04
Mar '15

26,040.59
392.09
2,877.69
428.74
5,088.43
34,827.54
Mar '14

12 mths
-1,237.48
240.18
1,611.68
-1,371.50
2,603.22
-3,974.72
-3,974.72
764.23
-4,738.95
10,043.21
0
0

12 mths
-911.15
2,382.02
1,337.52
1,044.50
2,070.30
-1,025.80
-1,025.80
-1,360.32
334.52
8,786.95
648.56
93.4

32,186.80
-14.72
0
46.1

32,186.80
1.04
100
59.51

What is 'Ratio Analysis?'

A ratio analysis is a quantitative analysis of information contained in a companys financial
statements. Ratio analysis is based on line items in financial statements like the balance sheet,
income statement and cash flow statement; the ratios of one item or a combination of items
- to another item or combination are then calculated. Ratio analysis is used to evaluate
various aspects of a companys operating and financial performance such as its efficiency,
liquidity, profitability and solvency. The trend of these ratios over time is studied to check
whether they are improving or deteriorating. Ratios are also compared across different
companies in the same sector to see how they stack up, and to get an idea of comparative
valuations. Ratio analysis is a cornerstone of fundamental analysis.

Ratio Analysis of TATA MOTOR

1- Liquidity and Solvency Ratios

Liquidity ratios and solvency ratios are tools investors use to make investment decisions.
Liquidity ratios measure a company's ability to convert its assets to cash. On the other hand,
solvency ratios measure a company's ability to meet its financial obligations.

Current Ratio
Quick Ratio
Debt Equity Ratio
Long Term Debt Equity Ratio

Current Ratio
Current ratio is an efficient tool to measure that the organization is capable in meeting up its
short term debts or not. Current ratio basically assesses a firms liquidity because, if a firm is
enough liquid and it has enough resources then it can pay back the all debts that need to cover
during 12 months.
Formula: Current Assets Current Liabilities
Higher current ratio definitely indicates that the firm is highly liquid and able enough to meet
the demands of the creditors. Satisfactory current ratio actually varies from industry to industry
but in general, if the current ratio lies between 1.5 and 3 then it indicates that the business is
healthy. If the current ratio is below 1then it means that the current liabilities are higher than
the current asset, so the firm can face many difficulties while paying back short term debts. On
the other hand if the current ratio is too high then it indicates that the firm is not efficient to
utilize its short term financing facilities. It may also indicate that the firm has problem in
working capital management.
Low current ratios normally indicate that the firm is in trouble to meet current obligation but
not necessarily always a low current ratio indicates a huge problem. Firms which have not
much currents assets but have a strong long term plans and prospects, they definitely can sort
out ways to tackle this problem. There are many firms who have a current ratio under 1 but

they are surviving quite well. So, low current ratio does not always mean that the firm is at an
alarming stage or very near to be bankrupt but of course it is better to maintain a standard
current ratio in order to ensure fewer risks.
From the perspective of short term creditors, a high current ratio is appreciable because it means
that the company is eager to pay back current debts within 12 months. A high current ratio also
indicates that the firm is much efficient to convert its goods into cash quickly.
In short, current ratio should be compared within the same industry as the benchmark ratio
varies from industry to industry.

Current Ratio of TATA Motor:

Year

2015

2014

Current Ratio

0.42

0.43

Table 1: Current Ratio

Current Ratio
Ratio per year

0.5
0.4
0.3
0.2
0.1
0
1

Years
2014

2015

Over the two years, TATA had highest current ratio in 2014 and the amount was 0.43. This
quite high figure indicates that TATA did not utilize its current assets to raise funds for the
business growth. Then in 2015 it was quite low than 2014 and the amount was 0.42 which is
still high but the decrease in the ratio indicates that on that year TATA tried to make proper
use of the current assets.

Quick Ratio
Quick Ratio: This ratio assesses the capacity of an organization to recover its current
liabilities by using the organizations quick assets. The asset which can be turned into cash
rapidly at an amount that is very close to its book value is known as quick asset.
Quick ratio is also known as Acid-test ratio and liquid ratio. Any quick ratio less than 1
means that the firm cannot pay back its current debts.
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Formula: (Current Asset-inventory) Current Liabilities

From the formula, we can see that inventory is not included in the quick ratio, where as it is
included in the current ratio. Always a high quick ratio is not considered as good, if it
happens that the firm has huge account receivables but those will be collected after a long
time and the current liabilities are lesser but needs to be paid instantly then the quick ratio
will be higher but still the firm is in a great risk as there is liquidity crisis. On the other hand,
opposite thing can be happen when the firm has lesser current assets which will be mature
soon and more current liabilities which need to be paid in much later. In this case, the quick
ratio will be lower but despite of that the firm is risk free as there is no hurry of payments.
Standard quick ratio is 1:1 or above. Higher the quick ratio, the company is more liquid but
yes the benchmark figure is different in different industries.
Quick Ratio of TATA Motor:
Years

2015

2014

Quick Ratio

0.42

0.36

Table 2: Quick Ratio

Ratio

Quick Ratio
0.45
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0

0.42

0.36

2015
2014

0
1

Year

The graph shows that TATA Motor had less quick ratio in 2014 but was increased in 2015.
Over these two years TATA has maintained very efficient quick ratios these were quite less
than 1 but in 2014 there was also fall and the ratio was below 1 which is very disappointing.
This means in 2014 TATA was not enough able to pay back its short term debt but if we
analyze he trend then we will find that TATA is capable to tackle liquidity crisis and to
recover from bad situations. Another important point is, the current ratio in 2014 was quite
high than 1 which means it had enough current assets but yes there were lacings in quick
assets. It actually means that when the current assets will generate cash then TATA will gain
a high quick ratio. This impact we really can see in 2015, as in this year the ratio is 0.45 so it
means TATA has recovered from the lacings in quick assets.

 Debt Equity Ratio

The debt-equity ratio is another leverage ratio that compares a company's total liabilities to its
total shareholders' equity. This is a measurement of how much suppliers, lenders, creditors
and obligors have committed to the company versus what the shareholders have committed.
To a large degree, the debt-equity ratio provides another vantage point on a company's
leverage position, in this case, comparing total liabilities to shareholders' equity, as opposed
to total assets in the debt ratio. Similar to the debt ratio, a lower the percentage means that a
company is using less leverage and has a stronger equity position.

Formula:

Years
Debt Equity Ratio

2015
1.35

2014
0.76

Table 3: Debt Equity Ratio

Debt Equity Ratio

1.6
1.4

Ratio

1.2
1
0.8
1.35

0.6
0.4

0.76

0.2
0

0
1

Years
2014

2015

To a large degree, 2015 which is 1.35 the debt-equity ratio provides another vantage point on
a company's leverage position, in this case, comparing total liabilities to shareholders' equity,
as opposed to total assets in the debt ratio. Similar to the debt ratio, a lower the percentage
like in 2014 which is 0.76 means that a company is using less leverage and has a stronger
equity position. So, if we compare 2015 to 2014 we will see that 2014 ratio had stronger
equity position.

 Long Term Debt Equity Ratio

In risk analysis, a way to determine a company's leverage. The ratio is calculated by taking
the company's long-term debt and dividing it by the total value of its preferred and common
stock. Put graphically:

Formula: Ratio = Long-term debt / (Preferred stock + Common stock)

The greater a company's leverage, the higher the ratio. Generally, companies with higher
ratios are thought to be more risky because they have more liabilities and less equity.

Years

2015

2014

long term Debt Equity Ratio

0.83

0.51

Table 4: Long Term Debt Equity Ratio

Ratio

Long Term Debt Equity Ratio

0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0

0.83
0.51

0
1

Years
2014

2015

The higher the ratio the more risky will be that because they have more liabilities and less
equity. So, the 2015 year has more liabilities than the year 2014 with the ratio of 0.83>0.51.
So, the greater a company's leverage, the higher the ratio 0.83 of 2015. Companies with
higher ratios are thought to be more risky because they have more liabilities and less equity
as of we compared 2015 Ratio of TATA to 2014 which 2015 became more risky than year
2014.

2- Management Efficiency Ratios

The efficiency ratio is typically used to analyze how well a company uses its assets and
liabilities internally. An efficiency ratio can calculate the turnover of receivables, the

10

repayment of liabilities, the quantity and usage of equity, and the general use of inventory
and machinery.

Inventory Turnover Ratio

Debtors Turnover Ratio
Investments Turnover Ratio
Fixed Assets Turnover Ratio
Total Assets Turnover Ratio
Asset Turnover Ratio

Inventory Turnover Ratio

Inventory Turnover Ratio: In the business, the sufficient volume of inventory is must and we
can judge that enough inventory is being produced or not through the inventory turnover
ratio. This ratio basically shows that over a period, how many times the inventories are sold
and renovated in a business. Generally, a company with high inventory turnover ratio is
assumed as strong one. When the inventory level is very high then the ratio will be low which
means the inventories are kept idle in the warehouse so definitely it is bad for future growth.
Huge amount of inventories also symbolize that the rate of return on the inventory investment
is near to zero.
The turnover ratios of the unpreserved goods are normally very high as these are sold out
quickly. Although high inventory turnover ratio is always desired but sometimes high ratio
may also indicate ineffective buying as lower inventory purchasing will cause the ratio to be
high.
Formula: Inventory Turnover Ratio= Sales Inventory
The ratio is also calculated in this manner,
Inventory Turnover Ratio= Cost of Goods Sold Average Inventory

Years
Inventory Turnover Ratio

2015
8.23

2014
9.78

Table 5: Inventory Turnover Ratio

From 2014 to 2015 TATA has maintained high inventory turnover which means that TATA
had strong sales over last few years. Although in 2015 there was little fall but in spite of that
the turnover was high which means inventories are utilized properly and through those high
sales are generated. In 2014 the ratio is higher.

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 Debtors Turnover Ratio

Debtor turnover ratio is the relationship between net sales and average debtors. It is also
called account receivable turnover ratio because we debtor and bill receivables' total is used
for following formula

= Net Credit Sales / Average Debtors (sundry debtors + bill receivables)

Average Debtors = Opening balance of debtors + closing balance of debtors / 2
Net Credit Sales = Total sales - sales return - cash sales
Years

2015

2014

Debtors Turnover Ratio

31.14

22.6

Table 6: Debtors Turnover Ratio

Interpretation of Debtor Turnover Ratio
1. Higher debtor turnover ratio is good because higher debtor turnover ratio means, more
fastly, we are collecting money. So, the ratio of TATA in 2015 is higher than year 2014
which is 31.14>22.6. It means, we are collecting money at 2015. More times than we collect
money from 2014, our liquidity position will become stronger.
2. Lower debtor turnover ratio is not good because it tells us that we have not manage
debtors better ways. Money from debtors are not collected fastly.

Investments Turnover Ratio

The investment turnover ratio compares the revenues produced by a business to its debt and
equity. The ratio is used to evaluate the ability of a management team to generate revenue
with a specific amount of funding. The "turnover" part of the term indicates the number of
multiples of revenue that can be generated with the current funding level.
The formula for the investment turnover ratio is to divide net sales by all stockholders' equity
and outstanding debt.
The calculation is:
Net sales
Shareholders' equity + Debt outstanding
Years
Investments Turnover Ratio

2015
8.23

2014
9.78

Table 7: Investments Turnover Ratio

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The investment turnover measures how many times a company "turns over" the money
invested in the company. As the ratio increases, so does a company's ability to generate
revenues. So, according to the ratio of 2014 and 2015 the revenue of 2014 which has greater
ratio than 2015 also have a greater revenue. So, 2014 was better than 2015.

Not comparable. This ratio cannot be used to compare businesses located in different
industries. One industry may require a hefty fixed asset base and so requires a large
investment, while another industry may require no fixed assets at all, so fewer funds
are needed to produce the same amount of sales.

Fixed Assets Turnover Ratio

It is the ratio where sales are compared with the fixed assets of the firm. The ratio actually
clarifies that the firm is capable enough to use its fixed assets to earn revenues or not. In fixed
asset turn over, normally investments on property, plant and equipment are counted and the
depreciations of these are subtracted. A high fixed asset turnover is always appreciable as it
signals towards the firms high productivity. Higher fixed asset turnover means the firm is
utilizing its fixed assets and generating revenues from these. On the other hand, low fixed
asset is the signal that the firm is not productive and the firm fails to generate sales revenue
by utilizing the fixed assets.
There is neither standard guideline nor a best level for fixed asset turnover, so the evaluation
and comparison can be done by calculating fixed asset turnovers of past years of a particular
organization. As there is no average figure, so progress of the firm can also be assessed
through comparing fixed asset turnovers of different firms of the same industry. High fixed
asset turnover means that less money is allocated to the fixed asset portion, where as too low
fixed asset turnover means that additional fixed asset investment has been made which is
unnecessary. So, the investment in fixed assets should be in the right amount, neither more
nor less and most importantly it should be monitored that the assets are being utilizing
properly thus they can contribute to high revenues.
Fixed Asset Turnover = Net Sales (Plant, Property, Equipment)

Years
Fixed Assets Turnover Ratio

2015
1.48

2014
1.49

Table 8: Fixed Asset Turnover ratio

TATA had a decreasing fixed asset turnover from the year 2014 to 2015. Although there was
a little bit fall in the fixed asset turnover in 2015 but the difference from 2014 is only .01 so
this is not any significant issue. So the decreases is quite less. This less trend actually
indicates that TATA has become less efficient is asset utilization over these two years.

13

 Total Assets Turnover Ratio

Total Asset Turnover judge that how much sales revenue is gathered in against of each dollar
of assets. Through this ratio, the effectiveness of asset management of the firm is measured.
Higher the ratio, higher the efficacy of the firm and the vice versa.
Total Asset Turnover = Revenue Total Assets
From the asset turnover, we can also guess that pricing strategy as the high asset turnover
signals towards the low profit margin which means costs have increased and need to cut
down.

Years

2015

2014

Total Assets Turnover Ratio

1.16

1.12

Table 9: Total Asset Turnover

It is a good point that the asset turnover was in increase in most of the time of the last 2 years.
Although in 2014 there was little fall but in 2015 it achieved the highest point of 1.16 which
is obviously satisfying. This increasing trend indicates that TATA is good at asset
management but it also indicates that in 2015 the profit margin was lower than that of 2014.

Asset Turnover Ratio

Asset turnover ratio is the ratio of a company's sales to its assets. It is an efficiency ratio
which tells how successfully the company is using its assets to generate revenue.
There are a number of variants of the ratio like total asset turnover ratio, fixed asset turnover
ratio and working capital turnover ratio. In all cases the numerator is the same i.e. net sales
(both cash and credit) but denominator is average total assets, average fixed assets and
average working capital respectively.
Formula
Following formulas are used to calculate each of the asset turnover ratios:
Total Asset Turnover Ratio =

Net Sales
Average Total Assets

Years
Assets Turnover Ratio

2015
1.06

2014
1.02

Table 10: Assets Turnover Ratio

This means that for every dollar of Company ABC's assets in year 2014 and year 205,
Company ABC generated $1.02 and 1.06 in revenue. Which year 2015 is better than 2014.

14

3- Debt Coverage Ratios

Debt service coverage ratio (DSCR) essentially calculates the repayment capacity of a
borrower. DSCR less than 1 suggests the inability of firms profits to serve its debts whereas a
DSCR greater than 1 means not only serving the debt obligations but also the ability to pay the
dividends.
Debt Service Coverage ratio (DSCR), one of the leverage / coverage ratios, calculated in order
to know the cash profit availability to repay the debt including interest. Essentially, DSCR is
calculated when a company / firm takes a loan from bank / financial institution / any other loan
provider. This ratio suggests the capability of cash profits to meet the repayment of the financial
loan. DSCR is very important from the viewpoint of the financing authority as it indicates a
repaying capability of the entity taking a loan. Just a years analysis of DSCR does not lead to
any concrete conclusion about the debt servicing capability. DSCR is relevant only when it is
seen for the entire remaining period of a loan.
How to calculate Debt Service Coverage Ratio?
Calculation of DSCR is very simple. To calculate this ratio, following items from the
financial statement are required:
o

Profit after tax (PAT)

Noncash expenses (e.g. Depreciation, Miscellaneous expenses are written off etc.)

Interest for the current year

Instalment for the current year

Lease Rental for the current year

Sometimes, these figures are readily available but at times, they are to be determined using
the financial statements of the company / firm.
DSCR Formula
PAT + Interest + Lease rental + Non-cash expenses

DSCR

Instalment (Interest + Principal repayment) + Lease Rental

Management Efficiency Ratios

2015

2014

Inventory Turnover Ratio

Debtors Turnover Ratio
Investments Turnover Ratio
Fixed Assets Turnover Ratio
Total Assets Turnover Ratio
Asset Turnover Ratio
Table 11: Management Efficiency Ratios

8.23
31.14
8.23
1.48
1.16
1.06

9.78
22.6
9.78
1.49
1.12
1.02

15

abcdef-

Inventory Turnover Ratio:

Debtors Turnover Ratio:
Investments Turnover Ratio:
Fixed Assets Turnover Ratio:
Total Assets Turnover Ratio:
Asset Turnover Ratio:

Parcentage of Ratio

Management Efficiency Ratios

35
30
25
20
15
10
5
0

31.14
22.6
8.239.78

Management
Efficiency
Ratios

8.239.78
1.481.49

1.161.12

1.061.02

Inventory
Turnover
Ratio

Debtors
Turnover
Ratio

Investments
Turnover
Ratio

Fixed Assets
Turnover
Ratio

Total Assets
Turnover
Ratio

Asset
Turnover
Ratio

2015

8.23

31.14

8.23

1.48

1.16

1.06

2014

9.78

22.6

9.78

1.49

1.12

1.02

Names of Ratios
2015

2014

a- Inventory Turnover Ratio

The inventory turnover ratio is an efficiency ratio that shows how effectively inventory is
managed by comparing cost of goods sold with average inventory for a period. This measures
how many times average inventory is "turned" or sold during a period. In other words, it
measures how many times a company sold its total average inventory dollar amount during
the year.
This ratio is important because total turnover depends on two main components of
performance. The first component is stock purchasing. If larger amounts of inventory are
purchased during the year, the company will have to sell greater amounts of inventory to
improve its turnover. If the company can't sell these greater amounts of inventory, it will
incur storage costs and other holding costs.
The second component is sales. Sales have to match inventory purchases otherwise the
inventory will not turn effectively. That's why the purchasing and sales departments must be
in tune with each other.
Formula
The inventory turnover ratio is calculated by dividing the cost of goods sold for a period by
the average inventory for that period.

16

years

2015

2014

Inventory Turnover Ratio

8.23

9.78

Table 12: Inventory Turnover Ratio

Analysis
Inventory turnover is a measure of how efficiently a company can control its merchandise, so
it is important to have a high turn. This shows the company does not overspend by buying too
much inventory and wastes resources by storing non-saleable inventory. It also shows that the
company can effectively sell the inventory it buys. So, according to the year 2015 and 2014
Ratio it mean that in 2014 which the ratio is 9.78 was selling well than year 2015 8.23.

b- Fixed Assets Turnover Ratio:

It is the ratio where sales are compared with the fixed assets of the firm. The ratio actually
clarifies that the firm is capable enough to use its fixed assets to earn revenues or not. In fixed
asset turn over, normally investments on property, plant and equipment are counted and the
depreciations of these are subtracted. A high fixed asset turnover is always appreciable as it
signals towards the firms high productivity. Higher fixed asset turnover means the firm is
utilizing its fixed assets and generating revenues from these. On the other hand, low fixed
asset is the signal that the firm is not productive and the firm fails to generate sales revenue
by utilizing the fixed assets.
There is neither standard guideline nor a best level for fixed asset turnover, so the evaluation
and comparison can be done by calculating fixed asset turnovers of past years of a particular
organization. As there is no average figure, so progress of the firm can also be assessed
through comparing fixed asset turnovers of different firms of the same industry. High fixed
asset turnover means that less money is allocated to the fixed asset portion, where as too low
fixed asset turnover means that additional fixed asset investment has been made which is
unnecessary. So, the investment in fixed assets should be in the right amount, neither more
nor less and most importantly it should be monitored that the assets are being utilizing
properly thus they can contribute to high revenues.
Fixed Asset Turnover = Net Sales (Plant, Property, Equipment)
Years
Fixed Assets Turnover Ratio

2015
1.48

2014
1.49

Table 13: Fixed Asset Turnover

TATA had a decreasing fixed asset turnover from the year 2014 to 2015. Although there was
a little bit fall in the fixed asset turnover in 2015 but the difference from 2014 is only .01 so

17

this is not any significant issue. So the decreases is quite less. This less trend actually
indicates that TATA has become less efficient is asset utilization over these two years.

Debt Coverage Ratios

Debt service coverage ratio (DSCR) essentially calculates the repayment capacity of a
borrower. DSCR less than 1 suggests the inability of firms profits to serve its debts whereas a
DSCR greater than 1 means not only serving the debt obligations but also the ability to pay the
dividends.
Debt Service Coverage ratio (DSCR), one of the leverage / coverage ratios, calculated in order
to know the cash profit availability to repay the debt including interest. Essentially, DSCR is
calculated when a company / firm takes a loan from bank / financial institution / any other loan
provider. This ratio suggests the capability of cash profits to meet the repayment of the financial
loan. DSCR is very important from the viewpoint of the financing authority as it indicates a
repaying capability of the entity taking a loan. Just a years analysis of DSCR does not lead to
any concrete conclusion about the debt servicing capability. DSCR is relevant only when it is
seen for the entire remaining period of a loan.
Formula
The debt service coverage ratio formula is calculated by dividing net operating income by total
debt service.

Interest Cover
Total Debt to Owners Fund
Financial Charges Coverage Ratio
Debt Coverage Ratios

2015

2014

Interest Cover

-1.22

0.64

Total Debt to Owners Fund

1.35

0.76

Financial Charges Coverage Ratio

0.4

2.18

Table 14: Debt Coverage Ratios

18

 Interest Cover
The interest coverage ratio is a financial ratio that measures a companys ability to make
interest payments on its debt in a timely manner. Unlike the debt service coverage ratio, this
liquidity ratio really has nothing to do with being able to make principle payments on the debt
itself. Instead, it calculates the firms ability to afford the interest on the debt.
Creditors and investors use this computation to understand the profitability and risk of a
company. For instance, an investor is mainly concerned about seeing his investment in the
company increase in value. A large part of this appreciation is based on profits and
operational efficiencies. Thus, investors want to see that their company can pay its bills on
time without having to sacrifice its operations and profits.
Formula

Debt Coverage Ratios

2015

2014

Interest Cover

-1.22

0.64

Table 15: Interest Cover

If the computation is less than 1, as we have in Table No. 15: both years ratio is less than 1 it
means the company isnt making enough money to pay its interest payments. Forget paying
back the principle payments on the debt. A company with a calculation less than 1 cant even
pay the interest on its debt. This type of company is beyond risky and probably would never
get bank financing.

19

4- Profitability ratios
Profitability ratios compare income statement accounts and categories to show a company's
ability to generate profits from its operations. Profitability ratios focus on a company's return
on investment in inventory and other assets. These ratios basically show how well companies
can achieve profits from their operations.
Investors and creditors can use profitability ratios to judge a company's return on investment
based on its relative level of resources and assets. In other words, profitability ratios can be
used to judge whether companies are making enough operational profit from their assets. In
this sense, profitability ratios relate to efficiency ratios because they show how well
companies are using their assets to generate profits. Profitability is also important to the
concept of solvency and going concern.

Profitability Ratios
Operating Profit Margin (%)
Profit Before Interest And Tax Margin (%)
Gross Profit Margin (%)
Cash Profit Margin (%)
Adjusted Cash Margin (%)
Net Profit Margin (%)
Adjusted Net Profit Margin (%)
Return On Capital Employed (%)
Return On Net Worth (%)
Adjusted Return on Net Worth (%)
Return on Assets Excluding Revaluations
Return on Assets Including Revaluations
Return on Long Term Funds (%)
Table 16: Profitability Ratios

2015

2014

-3.4
-10.06
-10.58
-4.53
-4.53
-13.05
-12.41
-5.61
-31.93
-29.21
46.1
46.18
-7.21

-2.65
-7.82
-8.69
7.72
7.72
0.97
0.87
2.52
1.74
4.56
59.51
59.58
2.94

Gross Profit Margin

Profitability depends on a large number of policies and managerial decisions of a firm. All
the effects of liquidity, asset and debt management on the income s judged through the
profitability ratios. Gross profit Margin, Profit Margin, Return on Assets and Return on
Equity are the mostly used profitability ratios.
The relationship of sales and cost of goods sold is assessed through gross profit margin. High
ratio indicates a secure position for the company. Low profit margin signals towards less safe
position because it means that sales are diminishing, therefore generating low revenues. It is
also a great tool of identifying pricing strategy and cost control. It helps to cut cost by
presenting that cost is relatively low or high than the revenues. So, from the low profit margin
we actually get the idea that I which way we need to control our costs.
Formula:
Gross Profit Margin = Gross Profit / Sales

20

Gross Profit Margin of TATA:

Years
Gross Profit Margin (%)

2015
-10.58

2014
-8.69

Table 17: Gross Profit Margin

Over the 2 years, the gross profit margin has decreased gradually by slight amount every year
but in 2015 there was a downfall and in 2015 it decreased by 1.89 point. In 2014 the sales
were higher than previous year 2015 but the costs associated with the sales were also high,
for this reason the margin was low. From this result, TATA tried to control the cost BUT IT
GONE WORST IN 2015 and as a result the situation was NOT better in 2015 than that of
2014. One positive thing we can notice that the performance of TATA was quite stable in
terms of gross profit margin which means throughout these years the TATA faced less
fluctuations, therefore had much secured position.

Operating Profit Margin

This ratio is another important tool to measure the profitability of the firm. Firstly, the
operating profit means the profit which is gained through the core business operations, not
from the financing or investing activities. This profit is also known as Earnings before
Interest and Tax (EBIT). Operating Profit= Operating Revenue-Cost of Goods SoldOperating Expenses-Depreciation and Amortization.
This operating profit is used to calculate the operating profit margin which clarifies that how
efficiently and effectively the firm is doing operations and making money. High operating
profit margin indicates that the firm is good at merchandising activities, they are low cost
producers so capable to offer cheap price to the customers and this manner they are making
high profit than the competitors. The operating profit margin, also clarifies another major
thing that is, how much operating profit a company makes on each dollar of sales. Higher
operating profit margin indicates a healthy business. In order to judge that the operating profit
margin is impressive or not, we need to observe that the ratio is increasing over time or not, if
the trend is increasing then definitely the firms efficiency to make profit from sales is
increasing.
Formula:
Operating Profit Margin = EBIT / Net Sales
Operating Profit Margin of TATA Motor:
Years
Operating Profit Margin (%)

2015
-3.84

2014
-2.65

Table 18: Operating Profit Margin

21

From the year 2014 to 2015 the operating profit margin was quite impressive as it was in
decreasing trend in the year 2014 it took a downfall which means on that year the sales
revenue was less than previous years and it also indicates poor management and pricing
strategy. Then in the year 2015 the scenario was worse because the downfall continued.

Net Profit Margin

This is the ratio of Net Income to Sales or Revenues. Through the net profit margin, we asses
that out of each dollar of sales, how much is kept as earning. This is also known as profit
margin. Higher the profit margin, better the condition of the firm. Higher profit margin means
that from the sales, higher portion is remaining as profit so it also indicates towards efficient
expense controlling ability.
Formula of
Net Profit Margin= Net Income/Sales
Years
Net Profit Margin

2015
-13.05

2014
0.79

Table 19: Net Profit Margin

In the year 2014 the profit margin was very high but in 2015there was downfall in profit
margin which means then revenue was lesser and expenses were also higher. However TATA
should be more concern in expense management pricing policies.

Return On Capital Employed

Return on capital employed or ROCE is a profitability ratio that measures how efficiently a
company can generate profits from its capital employed by comparing net operating profit to
capital employed. In other words, return on capital employed shows investors how many
dollars in profits each dollar of capital employed generates.
ROCE is a long-term profitability ratio because it shows how effectively assets are
performing while taking into consideration long-term financing. This is why ROCE is a more
useful ratio than return on equity to evaluate the longevity of a company.
Formula
Return on capital employed formula is calculated by dividing net operating profit or
EBIT by the employed capital.

22

If employed capital is not given in a problem or in the financial statement notes, you can
calculate it by subtracting current liabilities from total assets. In this case the ROCE formula
would look like this:

It isn't uncommon for investors to use averages instead of year-end figures for this ratio, but it
isn't necessary.
Years
Return On Capital Employed

2015
-5.61

2014
2.52

Table 20: Return on Capital Employed

The return on capital employed ratio shows how much profit each dollar of employed capital
generates. Obviously, a higher ratio would be more favourable because it means that more
dollars of profits are generated by each dollar of capital employed. So, as up 2014 the TATA
had best ratio which was 2.52 and it was best profit for TATA. But in the year 2015 it
downfall to -5.61 it mean that TATA was not able to make the best policies for its Return on
Capital Employed. That was the reason that it downfall from 2014.

5- Investment Valuation Ratios

This last section of the ratio analysis tutorial looks at a wide array of ratios that can be used
by investors to estimate the attractiveness of a potential or existing investment and get an idea
of its valuation.
Formula:

Investment Valuation Ratios

2015

2014

Face Value

Dividend Per Share

--

Operating Profit Per Share (Rs)

-3.84

-2.83

Net Operating Profit Per Share (Rs)

112.76

106.53

Free Reserves Per Share (Rs)

--

--

Bonus in Equity Capital

17.28

17.28

Table 21: Investment Valuation Ratios

23

The price/earnings ratio (P/E) is the best known of the investment valuation indicators. The
P/E ratio has its imperfections, but it is nevertheless the most widely reported and used
valuation by investment professionals and the investing public. The financial reporting of
both companies and investment research services use a basic earnings per share (EPS) figure
divided into the current stock price to calculate the P/E multiple (i.e. how many times a stock
is trading (its price) per each dollar of EPS).
It's not surprising that estimated EPS figures are often very optimistic during bull markets,
while reflecting pessimism during bear markets. Also, as a matter of historical record, it's no
secret that the accuracy of stock analyst earnings estimates should be looked at sceptically by
investors. Nevertheless, analyst estimates and opinions based on forward-looking projections
of a company's earnings do play a role in Wall Street's stock-pricing considerations.
Historically, the average P/E ratio for the broad market has been around 15, although it can
fluctuate significantly depending on economic and market conditions. The ratio will also vary
widely among different companies and industries.

However, when looking at the financial statements of a company many users can suffer from
information overload as there are so many different financial values. This includes revenue,
gross margin, operating cash flow, EBITDA, pro forma earnings and the list goes on.
Investment valuation ratios attempt to simplify this evaluation process by comparing relevant
data that help users gain an estimate of valuation.

6- Profit & Loss Account Ratios

The important ratios that arise from the Trading Account and Profit and Loss Statement
include gross profit margin, net profit margin, materials to sales, labour to sales, overhead
expenses to sales and stock turnover rate.
Profit & Loss Account Ratios
Material Cost Composition
Imported Composition of Raw Materials Consumed
Selling Distribution Cost Composition
Expenses as Composition of Total Sales
Table 22: Profit & Loss Account Ratios

2015
78.15
4.84
-15.37

2014
75.94
5.07
-20.24

The profit/loss ratio refers to a trading system's ability to generate profits over losses. The
profit/loss ratio is the average profit on winning trades divided by the average loss on losing
trades over a specified time period.

24

7- Cash Flow Indicator Ratios

The cash flow coverage ratio is an indicator of the ability of a company to pay interest and
principal amounts when they become due. This ratio tells the number of times the financial
obligations of a company are covered by its earnings. A ratio equal to one or more than one
means that the company is in good financial health and it can meet its financial obligations
through the cash generated by operating activities. A ratio of less than one is an indicator of
bankruptcy of the company within two years if it fails to improve its financial position.
It is an important indicator of the liquidity position of a company. This ratio is often used by
the banks to decide whether to make or refinance any loan.
Calculation (formula)
There are different formulas used for the calculation of this ratio. Some of the most
commonly used formulas are given below.
Cash Flow Coverage Ratio = Operating Cash Flows / Total Debt
The figure for operating cash flows can be found in the statement of cash flows. Total debt
includes the interest, short-term borrowings, current portion of long-term debt and long-term
debt. This ratio shows the ability of a company to pay its debt from the cash it generates from
its operations. A very low ratio can be an indication of too much debt or poor cash
generation.
Another formula used for the calculation of cash flow coverage ratio is
Cash flow coverage ratio = (Net Earnings + Depreciation + Amortization) / Total Debt
Cash Flow Indicator Ratios

2015

2014

Dividend Pay-out Ratio Net Profit

--

193.87

Dividend Pay-out Ratio Cash Profit

--

26.96

Earning Retention Ratio

100

25.83

Cash Earning Retention Ratio

--

77.98

Adjusted Cash Flow Times

--

4.93

Table 23: Cash Flow Indicator Ratios

This ratio also has some variations. For example, free cash flows can be used instead of
operating cash flows. This will be a more conservative ratio which provides for the capital
expenditure. Another variation may be used to include the payments for preferred dividends,
non-cancellable financial lease payments, redeemable shares, and rental payments. This will
be a more conservative ratio which takes into account more financial obligations.

25

Recommendations
Although TATA Motor is maintaining a fair current ratio, but from 2014 to 2015 it is
gradually decreasing which is an indication that current liabilities are increasing. So,
TATA Motor must concentrate on this issue and should be careful to control the
debts.
The debt ratio of TATA Motor is not so high but it is increasing gradually and in 2014
it was above .76. Although the figure is no so violent but if it is below .5 then more
secured condition is expressed. So, from now TATA Motor should check that its
dependency on the trade creditors is increasing or not. If it is increasing then TATA
Motor must take effective steps to reduce it.
There is an upward trend in debt to equity ratio, again it is pointing out that debts are
increasing. Although higher debts can give financial leverage but there is also a risk
of meeting up the debt obligations. So, TATA Motor should realize that higher debts
can lead it to higher risk. From now it should be little conservative in case of taking
debts.
Most of the profitability ratios are decreasing. So, it means the growth is lowering day
by day. In this case TATA Motor must needs to think that how more profit can be
achieved and needs to find ways to capture the significant portion of the market thus
profit level goes up.
In 2014 the sales growth was much higher than 2015 but not so much. Although its a
very positive indication to keep it maintain but TATA Motor should not forget that it
can increase the market share more. So, in this regard it should increase the
promotional activities to capture the consumer mind more.
Market coverage can be expanded through reaching the every corner of the country.
TATA Motor needs to adopt more aggressive strategy in order to beat the
competitors.
TATA Motor needs to change its policy of not pursuing the doctors to prescribe its
productions, otherwise it will not be able to cope up with the local giants.

Conclusion
Financial ratios analysis is a part of financial statement analysis and through this we can have
knowledge about the companys past and present performance. Most importantly it gives us
an idea that what can be the companys performance in the future. Ratio analysis involves the
calculation of statistical relationship between data and it is a very popular technique of
financial statement analysis. Throughout my analysis, I came to know about the financial
strength, operational efficacy of TATA Motor. I have realized that TATA Motor is
performing well, it is financially solvents but there some threats which are increasing
recently. If the risks or threats can be handled properly then definitely TATA Motor can
survive successfully as like the previous years.

26

Comparison of Financial Ratios of TATA Motor and BAJAJ

AUTO For the years 2015 and 2014
Comparison of two automobile companies for their ratio of the year 2015 and year 2014.
These below the main ratios of the both company which is also mentioned in Table 24 all
about comparison of both company financial ratios.

No.
of
Ratio
s
1
2
3
4

Investment Valuation Ratios

Profitability Ratios
Liquidity And Solvency Ratios
Debt Coverage Ratios
Management Efficiency Ratios
Profit & Loss Account Ratios
Cash Flow Indicator Ratios
Names Of The Ratios

TATA Motor

BAJAJ AUTO

Comparison of Financial Ratios of

TATA Motor and BAJAJ AUTO
For the years 2015 and 2014

Mar
'15

Mar
'15

Mar '14

0
10
50
141.89

Mar
'14

Investment Valuation Ratios

Face Value
Dividend Per Share
Operating Profit Per Share (Rs)

2
--3.84

Net Operating Profit Per Share (Rs)

112.76 106.53

6
7
8
9
10

Free Reserves Per Share (Rs)

Bonus in Equity Capital
Profitability Ratios
Operating Profit Margin (%)
Profit Before Interest And Tax
Margin (%)
Gross Profit Margin (%)
Cash Profit Margin (%)
Adjusted Cash Margin (%)
Net Profit Margin (%)
Adjusted Net Profit Margin (%)
Return On Capital Employed (%)
Return On Net Worth (%)
Adjusted Return on Net Worth (%)
Return on Assets Excluding
Revaluations
Return on Assets Including
Revaluations
Return on Long Term Funds (%)

-17.28

-17.28

-3.4
-10.06

-2.65
-7.82

0
10
50
142.2
6
746.8
7
-89.45
0
19.04
17.34

-10.58
-4.53
-4.53
-13.05
-12.41
-5.61
-31.93
-29.21
46.1

-8.69
7.72
7.72
0.97
0.87
2.52
1.74
4.56
59.51

17.81
15.41
0
0
12.67
41.01
26.31
29.49
369.5

19.48
16.41
0
0
15.55
47.92
33.75
33.75
332.04

46.18

59.58

369.5

332.04

-7.21

2.94

41.01

47.92

11
12
13
14
15
16
17
18
19
20
21

2
2
-2.83

696.33
-89.45
0
20.37
18.82

27

22
23
24
25
26
27
28

Liquidity And Solvency Ratios

Current Ratio
Quick Ratio
Debt Equity Ratio
Long Term Debt Equity Ratio
Debt Coverage Ratios
Interest Cover

29
30

Total Debt to Owners Fund

Financial Charges Coverage Ratio

31

0.42
0.42
1.35
0.83

0.43
0.36
0.76
0.51

0.89
0.72
0.01
0.01

0.8
0.67
0.01
0.01

-1.22

0.64

1.35
0.4

0.76
2.18

682.8
3
0.01
724.0
3
475.7
5
0
27.66
28.57
27.66
5.27
2
2.11
---12.26
0
71.03
4.27

9454.1
6
0.01
9820.7
1
6986.5
7
0
33.08
25.77
33.08
4.94
2.08
2.28
---23.69
0
70.91
4.25

Financial Charges Coverage Ratio

-0.33
2.8
Post Tax
32
Management Efficiency Ratios
33
Inventory Turnover Ratio
8.23
9.78
34
Debtors Turnover Ratio
31.14 22.6
35
Investments Turnover Ratio
8.23
9.78
36
Fixed Assets Turnover Ratio
1.48
1.49
37
Total Assets Turnover Ratio
1.16
1.12
38
Asset Turnover Ratio
1.06
1.02
39
Average Raw Material Holding
--40
Average Finished Goods Held
--41
Number of Days In Working Capital -41.83 -69.72
42
Profit & Loss Account Ratios
43
Material Cost Composition
78.15 75.94
44
Imported Composition of Raw
4.84
5.07
Materials Consumed
45
Selling Distribution Cost
----Composition
46
Expenses as Composition of Total
15.37 20.24
43.69 39.52
Sales
47
0
0
Cash Flow Indicator Ratios
48
Dividend Pay-out Ratio Net Profit
-193.87
51.42 44.6
49
Dividend Pay-out Ratio Cash Profit
-26.96
46.95 42.26
50
Earning Retention Ratio
100
25.83
54.13 55.4
51
Cash Earning Retention Ratio
-77.98
57.72 57.74
52
Adjusted Cash Flow Times
-4.93
0.03
0.02
Table 24: Comparison of Financial Ratios of TATA Motor and BAJAJ AUTO for the years
2015 and 2014

28

 Investment Valuation Ratios

BAJAJ: As we can see from the analysis of the above chart of the investment
valuation of the ratio, there is not much different is visible in this ratio Bajaj
company has the same price level of the stocks in the two years.
TATA: As of two years BAJAJ became light better than TATA because
BAJAJ two year was improvement and TATA ratio was
Operating Profit per Share (Rs)
-3.84 -2.83
Net Operating Profit per Share (Rs) 112.76 106.53
In these two part of ratio TATA was not good.
Profitability Ratios
BAJAJ: As we can see from the analysis of the above chart of the investment
valuation of the ratio, there is not much different is visible in this ratio Bajaj
company has the same price level of the stocks in the two years.
In general, the higher a company's profit margin, the better but, as with most
ratios, it is not enough to look at it in isolation. It is important to compare it to
the company's past levels, to the market average and to its competitors.
TATA: Over the 2 years, the gross profit margin has decreased gradually by
slight amount every year but in 2015 there was a downfall and in 2015 it
decreased by 1.89 point. In 2014 the sales were higher than previous year
2015 but the costs associated with the sales were also high, for this reason the
margin was low. From this result, TATA tried to control the cost BUT IT
GONE WORST IN 2015 and as a result the situation was NOT better in 2015
than that of 2014. One positive thing we can notice that the performance of
TATA was quite stable in terms of gross profit margin which means
throughout these years the TATA faced less fluctuations, therefore had much
secured position.
Liquidity And Solvency Ratios
BAJAJ: 2015 2014
0.89
0.8
0.72
0.67
0.01
0.01
0.01
0.01
BAJAJ Company from year 2014 increased gradually by points in some ratio
but in some or in two of it remain the same as 2014.
TATA: 2015 2014
0.42
0.42
1.35

0.83

0.43
0.36
0.76
0.51

Over the two years, TATA had highest current ratio in 2014. This quite high figure indicates
that TATA did not utilize its current assets to raise funds for the business growth. Then in
2015 it was quite low than 2014 and the amount was 0.42 which is still high but the decrease
in the ratio indicates that on that year TATA tried to make proper use of the current assets.

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Summary:
Financial ratios analysis is a part of financial statement analysis and through this we can have
knowledge about the companys past and present performance. Most importantly it gives us
an idea that what can be the companys performance in the future. Ratio analysis involves the
calculation of statistical relationship between data and it is a very popular technique of
financial statement analysis. Throughout my analysis, I came to know about the financial
strength, operational efficacy of TATA Motor. I have realized that TATA Motor is
performing well, it is financially solvents but there some threats which are increasing
recently. If the risks or threats can be handled properly then definitely TATA Motor can
survive successfully as like the previous years.

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